Historically, private and alternative investments have been reserved for investors who meet a strict array of criteria, mainly surrounding net worth thresholds. An August 2025 executive order titled “Democratizing Access to Alternative Assets for 401(k) Investors” was a major move toward making these investments more accessible – by opening the door for private and alternative investments to be eligible for 401(k) plans. The next step to this becoming a reality for retirement savers is for the Securities and Exchange Commission and Department of Labor to review and potentially revise current regulations. While this may sound like an opportunity for greater diversification and returns for retirement savers, it should be approached thoughtfully.
Not All Private Investments Are Equal
Early documents circulated by the administration suggest this could be an “all or nothing” ruling. Meaning all private investment strategies would be 401(k) eligible, everything from a highly leveraged cryptocurrency fund to a real estate loan fund. With risk profiles varying so greatly, the utmost caution should be used when selecting investments. If you’re curious how the use of leverage (debt) influences risk and return profiles of private investments, feel free to read our blog discussing this topic here.
Illiquidity and Lock Up Periods
One of the largest reasons private investments are currently excluded from 401(k) plans is their illiquid nature, especially if lock-up provisions restrict investor access to their money for a defined period. Even without lock-up periods, unlike an exchange-traded investment, you cannot simply request a sale, and have proceeds returned the next day. More times than not, your investment is put to work in an illiquid asset, like real estate or businesses. This means careful consideration of the duration of the investment is needed, especially if an investor is nearing the age where required minimum distributions (RMDs) start. It could be difficult to meet the RMDs if invested too heavily in illiquid assets.
Manager Experience
Even currently, when private investments are limited to individuals who meet certain net worth criteria, supply is not keeping pace with demand. Add the ability to invest from 401(k) accounts, and demand could soar exponentially. This could rapidly elicit new fund managers and offerings to quench demand. If you consider using retirement savings for a private investment, it is important to evaluate a manager’s experience, investment process and track record.
Conclusion
Although legislation allowing 401(k) savings to be invested in private funds has not yet been formally adopted, the democratization of private investments could be around the corner. It is important investors are knowledgeable about all elements of private investing, especially those that could pose risks or complications to retirement savings.
A member of the EBS Wealth Management team can help you evaluate whether a potential investment opportunity may or may not fit within your broader financial plan.
This content is provided for informational purposes only and should not be construed as investment advice or a recommendation of any security, strategy or product. Investing in private or alternative investments involves significant risk, including the potential loss of principal. Always consult with a qualified financial professional regarding your individual circumstances.